Glasgow-based Weir Group has agreed to pay up to US$200 million for a “modestly profitable” 22-year-old Canadian mining technology business currently generating about US$12m annual sales in another sign of the heat in mining tech M&A.
Weir said the £148m acquisition of Vancouver-based Motion Metrics, expected to close this quarter, would “accelerate growth” in its ESCO surface-mining consumables business, which posted £237m of revenue in the first six months of this year – up 1% year-on-year. Weir acquired Oregon-based ESCO Corp in 2018 for US$1285m to broaden its exposure to the mining market.
With its traditional business lines, Weir generates about 80% of its c£2000m annual sales from mining-related products and services. It sold its oil and gas unit to Caterpillar for US$375m in the first half of this year.
The company’s shares (LSE: WEIR) traded higher on Friday but are down about 12% year-to-date, capitalising Weir at £4.72 billion.
Weir CEO Jon Stanton said Motion Metrics “significantly increases the group’s capability in critical AI and machine vision technologies” and was “fully aligned to ESCO’s ambitious” digitisation-led growth strategy. Initial Weir-Motion Metrics integration efforts would focus on leveraging Weir’s global sales network and the ESCO division’s large installed base to “rapidly expand adoption of this value enhancing technology by our mining customers thereby driving significant revenue growth”.
Stanton said Motion Metrics was expected to be accretive to ESCO’s margins by 2023 with “returns expected to exceed the group’s cost of capital by 2024 in line with Weir’s capital allocation policy”.
After an initial £89m cash payment for the Canadian company, Weir will outlay “up to a further £59m” at the end of 2024 subject to certain undisclosed revenue and profit markers being hit.
Weir describes Motion Metrics as “the market leading developer of innovative artificial intelligence and 3D rugged machine vision technology used in mines worldwide”. Motion Metrics says its “mature technology is trusted by more than 80 large openpit mines across six continents and our algorithms have processed more than 40 billion images from the harshest operating conditions around the world”.
Founder and CEO Shahram Tafazoli said this week via social media the company shipped 16 of its ShovelMetrics Gen 3 systems to a large iron ore mine in South America late in October. “Our team has been working on this exciting new generation product for more than three years. It employs high-res rugged cameras and 3D viewing of the bucket, plus our most advanced AI-based algorithm for missing tooth detection, missing lip shroud monitoring, accurate 3D particle size sensing and boulder detection, to name a few.”
Tafazoli and Motion Metrics’ 125 employees are expected to remain with Weir as it establishes a new centre for excellence in AI and machine vision technology in Vancouver.
Weir’s Stanton said the acquisition was aligned with “our strategy and our commitment to grow ahead of our markets, expand our margins and significantly reduce our customers’ environmental footprint”. Stanton, who became Weir CEO in 2016, said at a function at the COP26 global leaders summit being hosted in Glasgow this week technology had a vital role to play in speeding the pace of innovation applied to carbon emissions reduction.
“We are doubling R&D spending [circa £31m in 2020] and deepening our great work with universities in Scotland and around the world. We’re also deploying AI to scour tens of millions of research and policy papers for innovations that can be applied to our markets,” Stanton said.
“And we’re investing in the next generation of young engineers to broaden our talent pool and tackle society’s biggest challenges.”
Epiroc, Sandvik, Komatsu, Bridgestone, Perenti Global and GR Engineering Services are among mining equipment, technology and services (METS) companies that have been buying up tech firms, and US-based Bentley Systems recently completed its $1 billion acquisition of New Zealand mining software developer, Seequent.
Ivan Gustavino, managing director of leading Australian METS deal advisor, Atrico, told InvestMETS.com low costs of capital, vast government stimulus spending and a bullish mining cycle had driven a significant rise in M&A activity in the METS sector.
“In our own firm our transaction volume tripled in FY21 compared to a typical year,” he said.
“We expect the positive environment for mining tech M&A to continue for at least a few more years. Vendors are getting attractive valuation and deal terms. Buyers have the funding to acquire quality businesses with good strategic fit.
“Companies are acquiring earlier-stage targets than they would traditionally have been comfortable with.
“This is for multiple reasons, [including] competitive pressure from VCs and PEs, understanding the true risk and cost of internal innovation, and the urgency of having a viable offering in a rapidly changing market.”